The FCC gave the states the authority to continue allowing AT&T, WorldCom and other phone companies to lease local phone lines at steep discounts. That upset local phone giants like SBC Communications and Verizon Communications.

At the same time, the FCC voted to lift many of the regulations giving competitors access to phone lines for broadband. That upset consumer groups and Internet service providers, who say customers will have to pay more for DSL and have fewer options.

Verizon Communications, the nation's largest telephone company, has vowed to go to court to challenge the ruling.

To discuss the FCC ruling and other issues, The Chronicle sat down last week with Verizon chief executive Ivan Seidenberg.

Although SBC Communications is better known in the Bay Area, Verizon Communications is the dominant local phone company in one-third of California. Verizon Wireless is also one of the state's largest mobile phone operators.

The Chronicle: What's your reaction to the FCC decision?

Seidenberg: We don't think they made a decision. We were hoping they would have inserted themselves in an industry that required some direction. Even if we didn't get things that we thought we were important, that would give us certainty. The worst thing you can have is uncertainty.

They claimed they deregulated broadband, but we are not sure they did. It's a little bit of a bait and switch. At 30,000 feet, they said they deregulated broadband. At 1,000 feet, there are the same level of rules that we had before.

With respect to local phone competition, they gave it back to the states. It's worse than that. They told them to do studies block by block, and that's nuts.

In order to get business capital flowing back into the industry, we need a little bit of a break from the economy, but we also need regulators to show some leadership.

The Chronicle: What are the issues in California you are concerned about?

Seidenberg: This commission (the state Public Utilities Commission) is thinking about passing a consumer bill of rights. It sounds good on the surface, (but) you wind up adding a lot of regulations without a lot of benefits.

For example, in wireless, customers won't be able to sign up for a service with a single phone call. It baffles us to see the degree of protection they want.

The Chronicle: One of the concerns from consumers is they buy a phone and take it home, only to find out it doesn't work where they need it. But they can't cancel the service without paying $200 or more in termination fees because they are locked into a long-term contract.

Seidenberg: We sell millions of millions of phones. Why are all the problems in California?

The Chronicle: There's a U.S. senator from New York, Democrat Charles Schumer, who just proposed national legislation on the topic -- a cell phone bill of rights.

Seidenberg: One of the benefits of having six carriers is there are a lot of choices. If people make the wrong choice, is that our fault? I think it is something that we need to work on, but I'm not sure we need a whole new bureau of regulation.

The Chronicle: You mentioned there are six wireless carriers. Is that too many?

Seidenberg: It's our view that the industry can't support that many. I'm not sure what the right amount is.

The Chronicle: There's been talk about Nextel or T-Mobile, two wireless carriers, getting acquired for years. Why hasn't it happened?

Seidenberg: I think the balance sheets of the six companies are all so different. And the stock market is so antsy about companies paying a premium for other companies that I am not sure that anyone is willing to take a risk until all these corporate government and accounting rules are forced through. That is one answer.

The other is that you have to get government approval. I don't think anyone is interested in saying (to FCC Chairman Michael Powell), "Dear Mr. Powell: We'd like you to approve our license transfer." You'd just be putting your head in the lion's mouth.

The Chronicle: Verizon is fighting a court order to provide the recording industry with the name of an Internet customer accused of downloading copyrighted music. Why?

Seidenberg: Under the Digital Millennium Copyright Act, we feel the standard for issuing subpoenas is so light that it puts us in a terrible position where we have to give away our customers' information because someone thinks you are downloading information.

As a company, we want to fight for our customers' privacy. If we lose, we lose. We're going to make them crawl over every legal hurdle there is until someone figures out there is a conflict here. We think the law is flawed.

The Chronicle: What's the solution?

Seidenberg: Technology people have also sorts of authentication and abilities to protect content. It costs something to protect it, just like you have fire walls protecting your computer network.

The Chronicle: There's a state assemblyman in California, Joe Simitian, a Democrat from Palo Alto, who wants to ban drivers from talking on their cell phones without hands-free equipment. What's your view?

Seidenberg: Our policy has been to support it. Our biggest issue is to avoid having the city of Fresno ban it and have another city doing something else.

The Chronicle: What about barring people from talking on their cell phones in movie theaters and restaurants? New York did that, and San Francisco is considering it.

Seidenberg: We didn't ban boom boxes from cafeterias. At some point, common sense has to take over. Clearly, driving is a safety issue. We would never put ourselves in the position of fighting for business at the expense of safety. But if someone's phone goes off in a restaurant, it's annoying, not a public safety issue.

The Chronicle: SBC was just named most admired telecom company by Fortune magazine:

Seidenberg: They've been around longer. Their CEO is better known. In terms of absolute ratings, it was about the same. Consumer Reports had us No. 1 in wireless. We have three times the number of JD Powers awards. Our time will come.

The Chronicle: Critics say the local phone companies have carved out large parts of the country and agreed not to compete with one another.

Seidenberg: In wireless, we compete with each other everyplace. In long distance, we are competing everyplace. In local, the rules are rigged so that if we decided to lay copper (phone lines), we'd have our head handed to us. They'd kill us. Every nickel we made would have to be used to offset something else.

The Chronicle: Why not take advantage of UNE-P rules that let you lease other local phone companies' networks at steep discounts?

Seidenberg: It's a dumb model. Anybody who goes into that business, including AT&T, is using a bad model. It's dumb. You have a giant corporation going into business leasing parts of a network with no ability to control margins or quality of service.

And where do they go with UNEs? Cable companies will develop lots of new services. Fiber will eventually come, and we'll adopt that. And you have this kludge of things between AT&T and the local phone company that will die because they cannot upgrade their capabilities.

If you're AT&T, what do you do? Wireless keeps taking away their market. And the Internet is taking away their market. They are chasing a moving target.

(AT&T) should focus on their enterprise market. They've got the best franchise and the best customers. All they are doing is killing themselves.